Turkey to set out 'new economic model' as lira tumbles

Turkey said it would set out a new economic plan as the Turkish lira dropped to a record low and pressure mounted on Ankara to reassure investors and resolve an escalating dispute with the US.

The lira was down as much as 2.9 per cent on Thursday, at TL5.4364 to the dollar, below the previous low of TL5.4253 reached on Monday.

In an emailed statement, Ankara said Berat Albayrak, finance minister, would announce a “new economic model” on Friday.

Markets have signalled deep concern about the consequences of Turkey’s rift with the Trump administration and the US’s imposition of sanctions on its Nato ally, and about the stewardship of the economy under President Recep Tayyip Erdogan and Mr Albayrak, his son-in-law.

A Turkish delegation held talks at the US state department on Wednesday, in a bid to settle the dispute with Washington, which centres on Ankara’s detention of a US pastor. However, there was no indication of a resolution by Thursday morning.

In its statement, the Turkish finance ministry said it planned to hold the budget deficit this year to less than 2 per cent of gross domestic and that it expected growth next year to be between 3 and 4 per cent, less than its previous forecast of 5.5 per cent growth for both this year and the next.

Some investors are worried that Turkish growth has become unbalanced, calling for the government to take steps to slow down the economy and reduce its dependence on short-term foreign funds.

The finance ministry said it expected the current account deficit, which was 5.6 per cent of GDP last year, to be less than 4 per cent next year and that inflation, currently about 15 per cent, would return to single digits in “a short period of time”.

It also said it did not believe Turkey’s banks or companies faced foreign exchange or dollar risks, despite market concerns about Turkish corporates’ level of debt.

“The Turkish banking system is in a position to effectively manage, as it has in the past, financial volatility with its robust capital structure and balance sheets,” it said.

“Contrary to the speculative statements being made in the market about our banks and our companies, our regulatory institutions do not see a problem posed by the exchange rate or liquidity risks . . . We recommend that investors and our people take these reports that reflect the real situation into consideration, rather than such comments.”

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Wednesday, 8 August, 2018

Among the disputes weighing on relations is the Trump administration’s decision this week to re-impose sanctions on Iran over its nuclear programme. Turkey relies on its neighbour for about half of its oil supply and 17 per cent of its natural gas, and the energy minister, Fatih Donmez, said on Wednesday it would continue to import Iranian gas.

“We don’t have the option of leaving Turkish citizens without electricity or in the cold,” he said, according to the Anadolu Agency, adding he expected “a good outcome” on the issue from the talks in Washington.

Mr Erdogan was quoted as telling a group of businessmen on Wednesday that the meeting in Washington showed “the process was working”.

“Everything will get better in a reasonable time. The markets will settle down. Don’t be afraid at all, it will all pass,” he said, according to Milliyet newspaper.

Thursday’s fall in the lira came amid a gloomy backdrop for emerging market currencies.

The Russian rouble declined further after experiencing a sharp drop on Wednesday after the Trump administration agreed new sanctions against the country following an alleged nerve agent attack against British citizen and former Russian spy Sergei Skripal.

MSCI’s emerging markets currencies gauge was down 0.14 per cent on Thursday.